What's the deal with Real Estate Investment Trusts (REIT)?

Real Estate Investment Trusts (REITs) are a classic way to invest in the real estate market without buying physical properties. A REIT is a company that uses a common investment fund to acquire or develop and typically manage a portfolio of income-generating properties. These properties may include apartment buildings, shopping centers, warehouses, and office buildings. REITs work similarly to mutual funds or exchange-traded funds (ETFs), allowing retail investors to expose themselves to the real estate market without incurring the high costs and headaches associated with owning and managing physical real estate.

Advantages of REITs for investors include diversification, regular income, liquidity, and protection against inflation. REITs provide diversification, allowing investors to gain exposure to the real estate market without buying or managing physical real estate. Additionally, REITs are required to distribute 90% of their tax-exempt profits to investors, providing a fairly stable source of supplemental income. REITs are also highly liquid, trading on the stock market, and can protect against inflation as rents tend to rise with inflation.

Disadvantages of REITs include slow growth, as only 10% of profits are reinvested in the company, and the tax implications of dividend payments from tax-exempt profits.